Wednesday, September 14, 2016

First of all, let’s get this straight: The Russian Federation of 2016 is not the Soviet Union of 1986. True, it covers most of the same territory and is run by some of the same thugs. But the Marxist ideology is gone, and so is the superpower status. We’re talking about a more or less ordinary corrupt petrostate here, although admittedly a big one that happens to have nukes.

I mention all of this because Donald Trump’s effusive praise for Vladimir Putin — which actually reflects a fairly common sentiment on the right — seems to have confused some people.

On one side, some express puzzlement over the spectacle of right-wingers — the kind of people who used to yell “America, love it or leave it!” — praising a Russian regime. On the other side, a few people on the left are anti-anti-Putinists, denouncing criticism of Mr. Trump’s Putin-love as “red-baiting.” But today’s Russia isn’t Communist, or even leftist; it’s just an authoritarian state, with a cult of personality around its strongman, that showers benefits on an immensely wealthy oligarchy while brutally suppressing opposition and criticism.

And that, of course, is what many on the right admire.

Am I being unfair? Could praise for Russia’s de facto dictator reflect appreciation of his substantive achievements? Well, let’s talk about what the Putin regime has, in fact, accomplished, starting with economics.

Mr. Putin came to power at the end of 1999, as Russia was recovering from a severe financial crisis, and his first eight years were marked by rapid economic growth. This growth can, however, be explained with just one word: oil.

For Russia is, as I said, a petrostate: Fuels account for more than two-thirds of its exports, manufactures barely a fifth. And oil prices more than tripled between early 1999 and 2000; a few years later they more than tripled again. Then they plunged, and so did the Russian economy, which has done very badly in the past few years.

Mr. Putin would actually have something to boast about if he had managed to diversify Russia’s exports. And this should have been possible: The old regime left behind a large cadre of highly skilled workers. In fact, Russian émigrés have been a key force behind Israel’s remarkable technology boom — and the Putin government appears to have no trouble recruiting talented hackers to break into Democratic National Committee files. But Russia wasn’t going to realize its technology potential under a regime where business success depends mainly on political connections.

So Mr. Putin’s economic management is nothing to write home about. What about other aspects of his leadership?

Russia does, of course, have a big military, which it has used to annex Crimea and support rebels in eastern Ukraine. But this muscle-flexing has made Russia weaker, not stronger. Crimea, in particular, isn’t much of a conquest: it’s a territory with fewer people than either Queens or Brooklyn, and in economic terms it’s a liability rather than an asset, since the Russian takeover has undermined tourism, its previous mainstay.

An aside: Weirdly, some people think there’s a contradiction between Democratic mocking of the Trump/Putin bromance and President Obama’s mocking of Mitt Romney, four years ago, for calling Russia our “No. 1 geopolitical foe.” But there isn’t: Russia has a horrible regime, but as Mr. Obama said, it’s a “regional power,” not a superpower like the old Soviet Union.

Finally, what about soft power, the ability to persuade through the attractiveness of one’s culture and values? Russia has very little — except, maybe, among right-wingers who find Mr. Putin’s macho posturing and ruthlessness attractive.

Which brings us back to the significance of the Putin cult, and the way this cult has been eagerly joined by the Republican nominee for president.

There are good reasons to worry about Mr. Trump’s personal connections to the Putin regime (or to oligarchs close to that regime, which is effectively the same thing.) How crucial has Russian money been in sustaining Mr. Trump’s ramshackle business empire? There are hints that it may have been very important indeed, but given Mr. Trump’s secretiveness and his refusal to release his taxes, nobody really knows.

Beyond that, however, admiring Mr. Putin means admiring someone who has contempt for democracy and civil liberties. Or more accurately, it means admiring someone precisely because of that contempt.

When Mr. Trump and others praise Mr. Putin as a “strong leader,” they don’t mean that he has made Russia great again, because he hasn’t. He has accomplished little on the economic front, and his conquests, such as they are, are fairly pitiful. What he has done, however, is crush his domestic rivals: Oppose the Putin regime, and you’re likely to end up imprisoned or dead. Strong!

Apparently, this market selloff has simply been because some idiots were short $VIX even though realized volatility had collapsed, and now they're selling their shorts.

Which is when they should be buying. Except they shouldn't because $VIX futures have been driven down too far. Or so the story goes. Because apparently there's no such thing as a market equilibrium in $VIX futures.

I'd like to buy this market, but there's a binary outcome ahead in the September Fed rate decision. So I'll just stay single-long for now, I think.

In an article on the prospect of a September interest rate hike by the Fed, the NYT pointed out that Esther George, the President of the Kansas City Federal Reserve Board Bank, expressed concern that low interest rates are fueling financial speculation. She has repeatedly given this as a basis for raising interest rates.

It is worth noting that George has never identified an area where prices are obviously out of line with fundamentals. In the two cases in the last 80 years where the collapse of a speculative bubble led to economic downturns, the stock bubble in the 1990s and the housing bubble in the last decade, it was easy for anyone who looked to recognize the bubbles and that they were moving the economy.

In both cases, the wealth generated by the bubbles led to a consumption boom, which would have been difficult to explain any other way.

You know the old adage, when the economy sniffles, the least advantaged catch pneumonia. Well, that works in reverse too. The benefits of closing in on full employment disproportionately flow to the least advantaged.

So we find in today’s data that while households throughout the pay scale saw real gains, the largest gains accrued to those at the households at the bottom of the income scale. I’m sure you’ve heard the topline income number: real median HH income up 5.2 percent, the largest one-year gain on record in this series, which starts in the mid-1960s, and the first real gain since 2007.

But real HH income went up 8 percent at the 10th percentile and 6 percent at the 20th percentile. Poverty rates for whites fell about one percentage point; the rate for blacks and Hispanics fell twice that much (though from much higher levels).

Meanwhile, income gains at the 90th and 95th percentiles were between 2 and 4 percent, below those of lower income households.

Two things:

1. That's a tailwind for future consumption, because it's the poor who spend every new penny that comes in.

2. Can you see why I make the case that Fed rate tightening is a form of class warfare?

The authors’ data on individual infrastructure projects tell us that China is basically no worse and no better than the rest of the world in terms of managing infrastructure projects–just like everywhere else, they often run behind schedule and over budget. This is certainly useful information but does not seem like a shocking finding. But if China is no better and no worse than the rest of the world at planning and executing infrastructure projects, it is hard to see how this would lead it into an infrastructure-driven financial crisis. The problem must therefore surely be that China is spending far too much on infrastructure, so that the ordinary problems of project mismanagement are magnified by the scale of its spending.

At this point in the paper I naturally expected the authors to show that China was in fact spending much, much more than other countries on infrastructure. But they don’t. In fact they present absolutely no statistical information about the level or growth rate of infrastructure spending in China. I know, I couldn’t really believe it either. What they do instead is present the usual numbers about the rapid growth of total investment and debt in China, such as the figures on gross fixed capital formation in the national accounts. It should hardly need pointing out that gross fixed capital formation is not the same thing as infrastructure spending; infrastructure is only one component of gross fixed capital formation, most of which is housing and business capital expenditure. (Putting a hard number on China’s infrastructure spending is indeed tricky, but not impossible. According to estimates by the former OECD economist Richard Herd, government and infrastructure sectors have usually accounted for 20-30% of gross fixed capital formation over the past couple of decades.) Since the authors do not establish that China is spending a lot on infrastructure in the aggregate, the conclusion that China’s macro problems from infrastructure spending are much greater than other countries simply does not follow from the micro evidence they present. It would certainly be useful to compare rates of infrastructure investment across countries, but this paper does not do that.

Phil reminds us of the answer David Cameron once gave to the question, why do you want to be Prime Minister? “Because I think I’d be rather good at it.”

Well, that didn’t work out too well did it? We’ve had plenty of PMs whose policies we didn’t like. But Cameron was, as Owen Jones says, “a failure on his own terms”. He wanted to eliminate the government deficit and keep us in the EU, and failed on both. I’d add that this his counter-productive pursuit of austerity contributed – at the margin – to Brexit by creating a climate of insecurity and xenophobia. In this sense, Cameron’s failure was down to deliberate ineptness rather than to facing insuperable odds. For this reason, he is probably one of our worst-ever Prime Ministers.

This poses the question: what, then, was the basis of his belief that he’d be “rather good” at the job?

It’s not that he had a great grasp of economics or politics. His mindless drivel about a “global race” and the “nation’s credit card revealed utter ignorance of the former. And I’ve long said that Cameron’s government failed to grasp the nature of politics – that it consists in ameliorating problems of collective action.

Instead, his confidence was rooted not in facts but in class. It’s a cliché that going to a top public school often gives one confidence and arrogance which others lack.

Work permits are among the post-Brexit migration curbs being considered but any changes must be good for the UK economy, the home secretary has said.

Amber Rudd told the BBC the work permit proposal "certainly has value" but nothing was being ruled out.

She accepted EU nations could choose to impose new restrictions, including requiring Britons to apply for permission before travelling.

Ms Rudd said it was a "given" people voted Leave to reduce immigration.

Speaking on the Andrew Marr Show, she reiterated the prime minister's dismissal of a points-based system to control EU migration championed by Brexit campaigners in the build-up to the referendum, saying it "simply doesn't work".

Actually, it works fine in Canada, and if she's not wholly incompetent then she knows that: then again, our points system means that we can't lock people out of the country explicitly based on race.

But let's see if you get it with this next bit:

She said her department was considering the alternative of requiring EU migrants to have work permits.

"Whether we look at a work permit system or another system is something that my department is looking at closely at the moment," she said.

Advancing a "work permit" system means a realization that the reason the Polaks and Romanians are in the UK is because employers want them.

And that's something that the idiots on the Leave side never fully comprehended. And the employers certainly are not going to let the government take away their foreign low-paid work force.

A permit system just means the government will be able to say "yes we know you hate Polaks, but every one of them is here because an employer hired them. So don't blame us."

Now the Tories just have to figure out how to replace every other aspect of EU governance with an exact replica that lets the government off the hook while letting them say "no, we're not part of the EU anymore".

Mutual funds managers who come from poor families outperform managers from rich families. Specifically, the former deliver a higher alpha for their investors. This is the main finding of a recent paper by Oleg Chuprinin from the University of New South Wales and Denis Sosyura from the University of Michigan, “Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds.” Chuprinin and Sosyura argue that, because they face higher barriers to entry, managers coming from poor families are more skilled.

In practical terms, Chuprinin and Sosyura found that, based on a four-factor alpha, fund managers in the bottom quintile of the sample outperform fund managers in the top quintile by 2.16 percent annualized (at a significance level of 1 percent).

Seems pretty obvious. Bourgeois brats of the kleptocratic oligarchy tend to be fucking stupid and clueless, because they have never needed any fucking brains to succeed. Stupidity is basically selected for in their ignorant world. Conversely, if you're a poor kid you must be awfully smart to make it as far as Wall Street.

So you'd think the smart poor kids get promoted more, right? Well:

Chuprinin and Sosyura also found that the chances of promotion of managers from rich families are less performance-dependent than those of managers from a more modest background.